WTI oil fell more than 5 per cent to $63 per barrel on Wednesday after US inventory data showed a much higher than expected build in crude stocks. Analysts had been expecting inventories to draw of 1.5m barrels, compared with the actual increase of 5m barrels.
As BNP Paribas’s Harry Tchilinguirian points out the rise came largely due to an unexpected rise in imports (our emphasis):
US crude stocks bucked expectations by posting a 5 mb build this week. The consensus was looking for a 1.5 mb draw amidst still depressed crude imports and refinery runs holding even. However, refinery runs pulled back by the week ending 24 July in sympathy with declining refining margins. Crude imports posted a strong gain, increasing some 820 kb/d to 10 mb/d and allowing a build in inventories. The jump in crude oil imports came as a surprise after several weeks of imports trending in the 9 to 9.2 mb/d range. The jump in imports was about evenly split between the West and Gulf Coasts, with potentially delivery of floating storage boosting the numbers on the US Gulf Coast. With this week’s build, US crude stocks end at 348 mb, over 52 mb above last year and over the upper limit of their recent five-year range. For the first half of July, the NYMEX futures 3:2:1 proxy for refining margins had come considerably down, trading mostly below $8/Bbl (compared to double digits in June). And given a rising surplus in product inventories, economics and discretion were probably at work behind the moderation in runs. Throughputs on the week fell 170 kb/d to 14.6 mb/d, leaving nation-wide utilisation rates of refining capacity at 84.6%.
An ongoing build at Cushing, meanwhile, is likely only to further strengthen the contango:
Cushing crude stocks move higher: Inventories rose 1.3 mb to push stocks to 32 mb. With storage at the delivery point of the NYMEX contract firmly above the psychological 30 mb threshold, there is scope for a further widening of the contango at the front of the curve, this despite considerable weakening in the near time spread since the beginning of July. The Sep09/Oct09 spread was trading circa $1.80/Bbl before the release of today’s statistics. And if refiners continue to limit throughputs, (i.e. crude demand) to contain a build in product stocks, both the front spread on the forward curve and the WTI/Brent spread stand to weaken further.And despite a decrease in refinery runs, there appears to be no retraction in the current distillate glut. Product stocks rose by 2m barrels in the week indicating, if anything, that industrial demand remains unusually weak for the season. As Tchilinguirian explains:
The build came on increases in diesel inventories, leaving a considerable glut in supply, notably on the US Gulf Coast. Beyond diesel, heating oil stocks in the main consuming Northeast region are already at pre-winter peak levels, at this rate, there may be no winter season either.
And here’s that distillate hangover in graphics:
All of the above hardly reflects a country in the process of economic recovery.
And in case you thought the supply/demand mismatch was just a US phenomenon, here’s a chart proving the problem’s global nature this year from Jeffrey Sprecher, CEO of the Intercontinental Exchange as presented in Tuesday’s CFTC speculator position hearings:
Related links:
BP results, ‘demand is in the toilet’ edition – FT Alphaville
Demand is in the toilet - FT Alphaville
Distillate hangover – FT Alphaville